EMPLOYEE

DOWNSIZING
THE CASE

PRESENTED BY-:
ABHYUDAY P. SINGH GOUR
PGDM SERVICES,IITTM,GWALIOR
What is Employee Downsizing?

Employees Downsizing is a set of organizational activities

undertaken by the management , which are designed to
improve the organizational efficiency, productivity &
improve competiveness.
Techniques & Strategies of Downsizing
• Attrition
The natural process of reduction in the workforce of the organization by the way of
retirement, death or resignation.

• Voluntary Retirement and Buyout benefits

It encourages employees to retire early with full or reduced pension benefits before
stipulated retirement age. Buyout is a similar technique that offers employees lump
sum amount to encourage employees leave the job.

• Involuntary Separation / Layoffs

Terminating the employees from the job without giving proper reasons for it.

• Leave without Pay

Employees are asked to go on a long leave with reduced benefits, but guarantees jobs when
they return.
 Facts about Downsizing………
1. Downsizing as a management tool was first introduced in U.S in mid 20 th
century.
2. Downsizing increased in 21 st century and was adopted by almost all
industries of many countries.
3. Employees are fired, not for incompetence but because management’s
decision to reduce overall work force.
4. Downsizing does more damage than good for the company.
5. Downsizing is followed by low morale, less employee loyalty, low
productivity of the retained employees & loss of key experts/personnel.
6. Earlier, only weak companies followed the trend facing demand erosion
and competition. Later, it was adopted by many financially strong
companies.
 Objectives behind Downsizing

The major objectives behind Downsizing is as follows:-

• Optimization of resources.
• Enhancing the Long term value of the firm.
• Reduction of costs.
• Improvement of Productivity.
• Improvement of Profitability.
• Eliminate the Duplication of work after M&A.
• Elimination of unnecessary intermediary channels.
 Side - Effects of Downsizing
Effect on Fired Workers
• Depression
• Anxiety
• Frustration
• Anger
• Bitterness

Effect on Retained workers

• Low Morale
• Uncertainty of the Job
• High Stress due to overload.
• Frustration, envy and depression.
• Decreased Productivity.
 First Phase of Downsizing

• Downsizing became a trend after 1990.

• Companies like GM, GE , Mc Donnell etc. downsized to increase productivity.
• Downsizing became a purposeful strategy of the company ex. Quality improvement.
• The concept of ‘Contingent Employment ‘ was introduced.
• Training and development programs were provided by the Management.
• Main objective was to increase the shareholder’s wealth.
• Companies adopted Downsizing without any purposeful need.
• However, over 60 % of the companies faced losses after downsizing.
• Imposition of Downsizing Tax in European countries.
Second Phase of Downsizing
• The second phase was started by mid 1990, which is characterized
decrease level of downsizing .
• Downsizing again gained momentum due to Technological changes, and
increased competition in late 90s.
• Companies were facing negative effects of Downsizing.
• Company paid heavily for Downsizing Ex. AT&T
• But, few years later AT&T again went for Downsizing 40000 employees
only to increase the salaries of there top executives.
How to tackle Downsizing?
• Formulation of a proper Downsizing strategy.
• Support of Senior leaders.
• Proper communication with the employees.
• Incentive and Assistance to Downsized employees.
• Effective monitoring systems
• Training managers for effective Downsizing.
Thank You